China to raise prices for cleaner fuel to boost production

23 September 2013

A statue of China's late Chairman Mao Zedong is seen in front of buildings during a hazy day in Shenyang, Liaoning province, May 7, 2013. REUTERS/Stringer

SHANGHAI (Reuters) - China will raise prices for higher quality fuels starting from year-end, the National Development and Reform Commission (NDRC) said on Monday, a move aimed at encouraging oil firms to boost production of cleaner fuels to tackle air pollution.

Beijing has urged domestic refiners led by Sinopec Corp <0386.HK> to speed up with the upgrade of their plants to produce cleaner fuels. But refiners have said costly upgrades would force them into heavy losses due to the lack of subsidies and state control of fuel prices.

In a bid to tackle the problem, prices for automotive diesel and gasoline that meet the national IV fuel standards will be raised by 290 yuan and 370 yuan per tonne respectively, the NDRC said in a statement. (http://www.ndrc.gov.cn/zcfb/zcfbtz/2013tz/t20130923_559942.htm)

The price hike for automotive diesel will come into effect at the end of 2013, with higher prices for diesel to come in late 2014.

The pricing adjustment will help Sinopec, which has already seen its second-quarter net profit jump after Beijing introduced measures to let domestic fuel prices follow the international market more closely.

The national IV fuel standards for automotive diesel are similar to Europe's IV quality with a sulphur content of 50 parts per million (ppm).

Prices for diesel that meet the National V standards will be raised by 170 yuan, while gasoline will be increased by 160 yuan a tonne, the commission said in a statement.

The new national V standards - similar to Euro V with a sulphur content no greater than 10 ppm - will become compulsory by the end of 2017.

Automotive diesel, used in trucks and buses, forms just over half of China's total diesel market of about 3.6 million barrels per day. Emissions from sub-quality diesel are a main cause of urban air pollution.

China first introduced automotive diesel specifications - III standards - in January 2010, and they became a national mandate from June 2011.

Beijing has been under heavy pressure to address the causes of air pollution after thick, hazardous smog engulfed much of the capital and the industrial north in January.

It unveiled comprehensive new measures to tackle air pollution earlier this month, with plans to slash coal consumption and close polluting mills, factories and smelters.